If you’re thinking about buying a car, walking into a dealership unprepared could make it difficult to negotiate a competitive price.
“The dealership has the upper hand because it (negotiates) every day, and it has the numbers,” says Mark La Spisa, president of Vermillion Financial Advisors and a member of the Financial Planning Association. “[The dealership] knows what it can do; where it can come in; what incentives it can give.”
If you plan to finance your new car, the price of the car can affect the total amount you will end up paying throughout the life of the loan, according to the Federal Trade Commission (FTC). So securing the best car price possible could save you a lot of money down the road.
As a buyer, you have one shot to get it right.
Before you start negotiating, consider these six tips to help you buy a new car at the lowest price possible:
1. Pick the car.
Start by thinking about which car model fits your lifestyle—do you need a minivan, truck or two-seater? Do you have a preference for a gas, electric or hybrid vehicle? And consider which additional features are most important to you, such as satellite radio or Bluetooth technology.
By planning ahead and doing your homework, you’ll be less likely to make a rash decision when the only thing standing between you and your new car is the dealer.
“If you can identify, to the greatest detail, what you want, including the add-ons, the better your chances will be,” La Spisa says. “Your ability to negotiate for a Ford Mustang is going to be different from how you negotiate for a Chevy Camaro.”
When you are doing your research, don’t forget to factor in how much you’re willing to spend on your car purchase. In general, a brand new car is the second most expensive purchase—behind a home—that most consumers will make in their lifetimes.
2. Research the cost.
After you’ve chosen a car that fits your needs and budget, do more research on what you can expect to pay for that vehicle. Check out Kelley Blue Book, consumer publications and websites, and consult with friends and family. This should give you insight into what a dealer charges for a specific model or for certain features.
“Use social media,” La Spisa says. “Ask, ‘Anyone know who owns this particular car and what they paid for it?’”
3. Learn the lingo.
Car dealers will likely use car lingo when you are negotiating with them, according to the FTC. Consider adding these terms to your vocabulary so you don’t get confused by the jargon:
- Invoice price: The price the manufacturer initially charges the dealer. The invoice price generally ends up being higher than what the dealer ultimately pays because discounts are usually tacked on in the form of rebates and incentive awards.
- Base price: The cost of the car with standard equipment. The cost of additional features is not included.
- Monroney sticker price: The price placed on a sticker that is usually located on the car’s window. It includes the manufacturer’s suggested retail price, the make and model of the car and the suggested retail price for additional features.
- Dealer sticker price: This is the Monroney sticker price with the suggested retail price of dealer-installed options.
4. Gather quotes.
Once you have a sense of what your desired car should cost and have studied the car negotiating lingo, identify the dealerships in your area that sell the car you have your eye on. Contact several dealerships and ask them to provide you with a quote.
According to the National Automobile Dealers Association (NADA), there are multiple ways to contact your local dealer in order to request a quote, including an in-person visit, phone call, email or fax.
La Spisa strongly suggests avoiding in-person visits until you’re ready to make a deal. Instead, he recommends emailing the dealership, since many now have online sales teams. If you do your initial communication by email, it may prevent the dealer from talking you in to a less satisfactory deal. In your email, include the specific car you want to buy and that you would like to make the purchase in the next 72 hours. A deadline, La Spisa says, could encourage the dealership to make you a competitive deal.
5. Begin the negotiations.
After you receive several quotes, ask dealers if they can beat the lowest price you received.
Dealers are sometimes willing to bargain between 10 and 20 percent on their profit margin—the difference between the manufacturer’s suggested retail price, which is listed on the Monroney sticker, and the invoice price, according to the FTC.
When you receive a better price, La Spisa says, don’t be afraid to go back to the dealer who initially offered you the lowest quote to see if he or she will go any lower. Once you can’t squeeze anymore from the dealer with the best price, ask the dealer to officially make you an offer.
6. Don’t be afraid to walk away.
Set a realistic price limit that you know you can afford, and don’t be afraid to walk away from a deal that’s beyond your means.
“Remember, it’s your money. You have to be willing to walk and go back to your next option,” La Spisa says.